Jason pederson 7 on your side

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GREGORY G. DESS

University of Texas at Dallas

GERRY McNAMARA

Michigan State University

ALAN B. EISNER

Pace University

SEUNG-HYUN (SEAN) LEE

University of Texas at Dallas

text & cases

ninth edition

STRATEGIC MANAGEMENT

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STRATEGIC MANAGEMENT: TEXT AND CASES, NINTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2019 by McGraw- Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2016, 2014, and 2012. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 0 LWI 21 20 19 18

ISBN 978-1-259-81395-5 (bound edition) MHID 1-259-81395-9 (bound edition)

ISBN 978-1-259-89997-3 (loose-leaf edition) MHID 1-259-89997-7 (loose-leaf edition)

ISBN 978-1-259-89994-2 (instructor’s edition) MHID 1-259-89994-2 (instructor’s edition)

Portfolio Director: Michael Ablassmeir Lead Product Developer: Kelly Delso Product Developer: Anne Ehrenworth Executive Marketing Manager: Debbie Clare Content Project Managers: Harvey Yep (Core), Bruce Gin (Assessment) Buyer: Susan K. Culbertson Design: Matt Diamond Content Licensing Specialists: DeAnna Dausener (Image and Text) Cover Image: ©Anatoli Styf/Shutterstock Compositor: SPi Global

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Names: Dess, Gregory G., author. | McNamara, Gerry, author. | Eisner, Alan B., author. Title: Strategic management : text and cases / Gregory G. Dess, University of Texas at Dallas, Gerry McNamara, Michigan State University, Alan B. Eisner, Pace University. Description: Ninth edition. | New York, NY : McGraw-Hill Education, [2019] Identifiers: LCCN 2017052281 | ISBN 9781259813955 (alk. paper) Subjects: LCSH: Strategic planning. Classification: LCC HD30.28 .D4746 2019 | DDC 658.4/012—dc23 LC record available at https://lccn.loc.gov/2017052281

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

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To my family, Margie and Taylor and my parents, the late Bill and Mary Dess; and Michael Wood

To my first two academic mentors—Charles Burden and Les Rue (of Georgia State University)

–Greg

To my wonderful wife, Gaelen, my children, Megan and AJ; and my parents, Gene and Jane

–Gerry

To my family, Helaine, Rachel, and Jacob

–Alan

To my family, Hannah, Paul and Stephen; and my parents, Kenny and Inkyung.

–Sean

DEDICATION

dedication

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Gregory G. Dess is the Andrew R. Cecil Endowed Chair in Management at the University of Texas at Dallas. His primary research interests are in strategic management, organization- environment relationships, and knowledge management. He has published numerous articles on these subjects in both academic and practitioner-oriented journals. He also serves on the editorial boards of a wide range of practitioner-oriented and academic journals. In August 2000, he was inducted into the Academy of Management Journal’s Hall of Fame as one of its charter members. Professor Dess has conducted executive programs in the United States, Europe, Africa, Hong Kong, and Australia. During 1994 he was a Fulbright Scholar in Oporto, Portugal. In 2009, he received an honorary doctorate from the University of Bern (Switzerland). He received his PhD in Business Administration from the University of Washington (Seattle) and a BIE degree from Georgia Tech.

Gerry McNamara is the Eli Broad Professor of Management at Michigan State University. His research draws on cognitive and behavioral theories to explain strategic phenomena, including strategic decision making, mergers and acquisitions, and environmental assessments. His research has been published in the Academy of Management Journal, the Strategic Management Journal, Organization Science, Organizational Behavior and Human Decision Processes, the Journal of Applied Psychology, the Journal of Management, and the Journal of International Business Studies. Gerry’s research has also been abstracted in the Wall Street Journal, Harvard Business Review, New York Times, Bloomberg Businessweek, the Economist, and Financial Week. He serves as an Associate Editor for the Strategic Management Journal and previously served as an Associate Editor for the Academy of Management Journal. He received his PhD from the University of Minnesota.

ABOUT THE AUTHORS

about the authors

©He GaoPhoto provided by the author

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Alan B. Eisner is Professor of Management and Department Chair, Management and Management Science Department, at the Lubin School of Business, Pace University. He received his PhD in management from the Stern School of Business, New York University. His primary research interests are in strategic management, technology management, organizational learning, and managerial decision making. He has published research articles and cases in journals such as Advances in Strategic Management, International Journal of Electronic Commerce, International Journal of Technology Management, American Business Review, Journal of Behavioral and Applied Management, and Journal of the International Academy for Case Studies. He is the former Associate Editor of the Case Association’s peer-reviewed journal, The CASE Journal.

Seung-Hyun Lee is a Professor of strategic management and international business and the Area Coordinator of the Organization, Strategy, and International Management area at the Jindal School of Business, University of Texas at Dallas. His primary research interests lie on the intersection between strategic management and international business spanning from foreign direct investment to issues of microfinance and corruption. He has published in numerous journals including Academy of Management Review, Journal of Business Ethics, Journal of International Business Studies, Journal of Business Venturing, and Strategic Management Journal. He received his MBA and PhD from the Ohio State University.

©Seung-Hyun Lee©Alan B. Eisner

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PREFACE

Welcome to the Ninth Edition of Strategic Management: Text and Cases! As noted on the cover, we are happy to introduce Seung- Hyun Lee to the author team. Greg has known Seung since we both joined the faculty at the University of Texas at Dallas in 2002. Seung has developed a very distinguished publication record in both strategic management and international business/international management and he has made many important contributions in these areas in the present edition. In particular, his international expertise has been particularly valuable in further “globalizing” our book.

We appreciate the constructive and positive feedback that we have received on our work. Here’s some of the encouraging feedback we have received from our reviewers:

The Dess book comprehensively covers the fundamentals of strategy and supports concepts with research and managerial insights.

Joshua J. Daspit, Mississippi State University

Very engaging. Students will want to read it and find it hard to put down.

Amy Grescock, University of Michigan, Flint

Very easy for students to understand. Great use of business examples throughout the text.

Debbie Gilliard, Metropolitan State University, Denver

I use Strategic Management in a capstone course required of all business majors, and students appreciate the book because it synergizes all their business education into a meaningful and understandable whole. My students enjoy the book’s readability and tight organization, as well as the contemporary examples, case studies, discussion questions, and exercises.

William Sannwald, San Diego State University

The Dess book overcomes many of the limitations of the last book I used in many ways: (a) presents content in a very interesting and engrossing manner without compromising the depth and comprehensiveness, (b) inclusion of timely and interesting illustrative examples, and (c) EOC exercises do an excellent job of complementing the chapter content.

Sucheta Nadkami, University of Cambridge

The content is current and my students would find the real-world examples to be extremely interesting. My colleagues would want to know about it and I would make extensive use of the following features: “Learning from Mistakes,” “Strategy Spotlights,” and “Issues for Debate.” I especially like the “Reflecting on Career Implications” feature. Bottom line: the authors do a great job of explaining complex material and at the same time their use of up-to-date examples promotes learning.

Jeffrey Richard Nystrom, University of Colorado at Denver

We always strive to improve our work and we are most appreciative of the extensive and thoughtful feedback that many strategy professionals have graciously given us. We endeavored to incorporate their ideas into the Ninth Edition—and we acknowledge them by name later in the Preface.

We believe we have made valuable improvements throughout our many revised editions of Strategic Management. At the same time, we strive to be consistent and “true” to our original overriding objective: a book that satisfies three R’s—rigor, relevance, and readable. And we are

preface

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pleased that we have received feedback (such as the comments on the previous page) that is consistent with what we are trying to accomplish.

What are some of the features in Strategic Management that reinforce the 3 R’s? First, we build in rigor by drawing on the latest research by management scholars and insights from management consultants to offer a current a current and comprehensive view of strategic issues. We reinforce this rigor with our “Issues for Debate” and “Reflecting on Career Implications. . .” that require students to develop insights on how to address complex issues and understand how strategy concepts can enhance their career success. Second, to enhance relevance, we provide numerous examples from management practice in the text and “Strategy Spotlights” (sidebars). We also increase relevance by relating course topic and examples to current business and societal themes, including environmental sustainability, ethics, globalization, entrepreneurship, and data analytics. Third, we stress readability with an engaging writing style with minimal jargon to ensure an effective learning experience. This is most clearly evident in the conversational presentations of chapter opening “Learning from Mistakes” and chapter ending “Issues for Debate.”

Unlike other strategy texts, we provide three separate chapters that address timely topics about which business students should have a solid understanding. These are the role of intellectual assets in value creation (Chapter 4), entrepreneurial strategy and competitive dynamics (Chapter 8), and fostering entrepreneurship in established organizations (Chapter 12). We also provide an excellent and thorough chapter on how to analyze strategic management cases.

In developing Strategic Management: Text and Cases, we certainly didn’t forget the instructors. As we all know, you have a most challenging (but rewarding) job. We did our best to help you. We provide a variety of supplementary materials that should help you in class preparation and delivery. For example, our chapter notes do not simply summarize the material in the text. Rather (and consistent with the concept of strategy), we ask ourselves: “How can we add value?” Thus, for each chapter, we provide numerous questions to pose to help guide class discussion, at least 12 boxed examples to supplement chapter material, and three detailed “teaching tips” to further engage students. For example, we provide several useful insights on strategic leadership from one of Greg’s colleagues, Charles Hazzard (formerly Executive Vice President, Occidental Chemical). Also, we completed the chapter notes—along with the entire test bank—ourselves. That is, unlike many of our rivals, we didn’t simply farm the work out to others. Instead, we felt that such efforts help to enhance quality and consistency—as well as demonstrate our personal commitment to provide a top-quality total package to strategy instructors. With the Ninth Edition, we also benefited from valued input by our strategy colleagues to further improve our work.

Let’s now address some of the key substantive changes in the Ninth Edition. Then we will cover some of the major features that we have had in previous editions.

WHAT’S NEW? HIGHLIGHTS OF THE NINTH EDITION We have endeavored to add new material to the chapters that reflects the feedback we have received from our reviewers as well as the challenges today’s managers face. Thus, we all invested an extensive amount of time carefully reviewing a wide variety of books, academic and practitioner journals, and the business press.

We also worked hard to develop more concise and tightly written chapters. Based on feedback from some of the reviewers, we have tightened our writing style, tried to eliminate redundant examples, and focused more directly on what we feel is the most important content in each chapter for our audience. The overall result is that we were able to update our material, add valuable new content, and—at the same time—shorten the length of the chapters.

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Here are some of the major changes and improvements in the Ninth Edition:

∙ Big Data/Data Analysis. A central theme of the Ninth Edition, it has become a leading and highly visible component of a broader technological phenomena—the emergence of digital technology. Such initiatives have the potential to enable firms to better customize their product and service offerings to customers while more efficiently and fully using the resources of the company. Throughout the text, we provide examples from a wide range of industries and government. This includes discussions of how Coca Cola uses data analytics to produce consistent orange juice, IBM’s leveraging of big data to become a healthcare solution firm, Caterpillar’s use of data analytics to improve machine reliability and to identify needed service before major machine failures, and Digital Reasoning’s efforts to use data analytics to enhance the ability of firms to control employees and avoid illegal and unethical behavior.

∙ Greater coverage of international business/international management (IB/IM from new co-author). As we noted at the beginning of the Preface, we have invited Seung-Hyun Lee, an outstanding IB/IM scholar, to join the author team and we are very pleased that he has accepted! Throughout the book we have included many concepts and examples of IB/IM that reflects the growing role of international operations for a wide range of industries and firms. We discuss how differences in national culture impact the negotiation of contracts and whether or not to adapt human resource practices when organizations cross national boundaries. We also include a discussion of how corporate governance practices differ across countries and discuss in depth how Japan is striving to develop balanced governance practices that incorporate elements of U.S. practices while retaining, at its core, elements of traditional Japanese practices. Additionally, we discuss why conglomerate firms thrive in Asian markets even as this form of organization has gone out of favor in the United States and Europe. Finally, we discuss research that suggests that firms in transition economies can improve their innovative performance by focusing on learning across boundaries within the firm compared to learning from outside partners.

∙ “Executive Insights: The Strategic Management Process.” Here, we introduce a nationally recognized leader and explore several key issues related to strategic management. The executive is William H. McRaven, a retired four-star admiral who leads the nation’s second largest system of higher education. As chief executive officer of the UT System, he oversees 14 institutions that educate 217,000 students and employ 20,000 faculty and more than 70,000 health care professionals, researchers, and staff. He is perhaps best known for his involvement in Operation Neptune Spear, in which he commanded the U.S. Navy Special Forces who located and killed al Qaeda leader Osama bin Laden. We are very grateful for his valuable contribution!

∙ Half of the 12 opening “Learning from Mistakes” vignettes that lead off each chapter are totally new. Unique to this text, they are all examples of what can go wrong, and they serve as an excellent vehicle for clarifying and reinforcing strategy concepts. After all, what can be learned if one simply admires perfection?

∙ Over half of our “Strategy Spotlights” (sidebar examples) are brand new, and many of the others have been thoroughly updated. Although we have reduced the number of Spotlights from the previous edition to conserve space, we still have a total of 64—by far the most in the strategy market. We focus on bringing the most important strategy concepts to life in a concise and highly readable manner. And we work hard to eliminate unnecessary detail that detracts from the main point we are trying to make. Also, consistent with our previous edition, many of the Spotlights focus on two

PREFACE

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“hot” issues that are critical in leading today’s organizations: ethics and environmental sustainability—as well as data analytics in this edition.

Key content changes for the chapters include:

∙ Chapter 1 addresses three challenges for executives who are often faced with similar sets of opposing goals which can polarize their organizations. These challenges, or paradoxes, are called (1) the innovation paradox, the tension between existing products and new ones—stability and change; (2) the globalization paradox, the tension between global connectedness and local needs; and, (3) the obligation paradox, the tension between maximizing shareholder returns and creating benefits for a wide range of stakeholders— employees, customers, society, etc. We also discuss three theaters of practice that managers need to recognize in order to optimize the positive impact of the corporate social responsibility (CSR) initiatives. These are (1) Focusing on philanthropy, (2) Improving operational effectiveness, and (3) Transforming the business model.

∙ Chapter 2 introduces the concept of big data/data analytics—a technology that affects multiple segments of the general environment. A highly visible component of the digital economy, such technologies are altering the way business is conducted in a wide variety of sectors—government, industry, and commerce. We provide a detailed example of how it has been used to monitor the expenditures of federal, state, and local governments.

∙ Chapter 3 includes a discussion on program hiring to build human capital. With program hiring, firms offer employment to promising graduates without knowing which specific job the employee will fill. Firms employing this tactic believe it allows them to meet changing market conditions by hiring flexible employees who desire a dynamic setting. We also include a discussion of how Coca Cola is leveraging data analytics to produce orange juice that is consistent over time and can be tailored to meet local market tastes.

∙ Chapter 4 discusses research that has found that millennials have a different definition of diversity and inclusion than prior generations. That is, millennials look upon diversity as the blending of different backgrounds, experiences, and perspectives within a team, i.e., cognitive diversity. Earlier generations—the X-Generation and the Boomer Generation— tended to view diversity as a representation of fairness and protection for all regardless of gender, race, religion, etc. An important implication is that while many millennials believe that differences of opinion enable teams to excel, relatively few of them feel that their leaders share this perspective. The chapter also provides a detailed example of how data analytics can increase employee retention.

∙ Chapter 5 examines how firms can create strong competitive positions in platform markets. In platform markets, firms act as intermediaries between buyers and sellers. Success is largely based on the ability of the firm to be the de facto provider of this matching process. We discuss several actions firms can take to stake out a leadership position in these markets. In addition, we include a discussion of research outlining how firms can develop organizational structures and policies to draw on customer interactions to improve their innovativeness. The key finding from this research is that it is critical for firms to empower and incent front line employees to look for and share innovative insights they take away from customer interactions.

∙ Chapter 6 includes a section on different forms of strategic alliances and when they are most appropriate. In discussing the differences between contractual alliances, equity alliances, and joint ventures, students can better understand the range of options they

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have to build cooperative arrangements with other firms and the factors that influence the choice among these options.

∙ Chapter 7 explains two important areas in which culture can play a key role in managing organizations across national boundaries. First, we discuss situations in which it is best to not adapt one’s company culture—even if it conflicts with the culture country in which the firm operates. We provide the example of Google’s human resource policy of providing employees with lots of positive feedback during performance reviews. Why? Google feels that this is a key reason for its outstanding success in product innovation. Second, we address some of the challenges that managers encounter when they negotiate contracts across national boundaries. We discuss research that identifies several elements of negotiating behaviors that help to identify cultural differences.

∙ Chapter 8 identifies factors investors can examine when evaluating the risk of crowdfunded ventures. When firms raise funds through crowdfunding, they often have limited business and financial histories and haven’t yet built up a clear reputation. This raises the risks investors face. We identify some factors investors can look into to clarify the worthiness and risk of firms who are raising financial resources through crowdfunding.

∙ Chapter 9 discusses the increasingly important role that activist investors have in the corporate governance of publicly-traded firms. Activist investors are investors who take small but significant ownership stakes in large firms, typically 5 to 10 percent ownership, and push for major strategic changes in the firm. These activist investors are often successful, winning 70 percent of the shareholder votes they champion and have forced the exit of leaders of several large firms. Additionally, we discuss a corner of Wall Street where women dominate, as corporate governance heads at major institutional investors. These institutional investors hold large blocks of stock in all major corporations. As a result, these female leaders are in a position to push for governance changes in these corporations to make them more responsive to the concerns of investors, such as increasing opportunities for female corporate leaders.

∙ Chapter 10 discusses how firms can organize to improve their innovativeness. Often managers look to outside partners to learn new skills and access new knowledge to improve their innovative performance. We discuss research that suggests that efforts to look to create novel combinations of knowledge within the firm offer greater potential to generate stronger innovation performance. The key advantage of internal knowledge is that it is proprietary and potentially more applicable to the firm’s innovation efforts.

∙ Chapter 11 includes discussions of multiple firms that have changed their leadership and control systems to respond to challenges they’ve faced. This includes Marvin Ellison’s efforts to revive JC Penney after prior bad leadership, Target’s efforts to change its supply chain system to meet changing customer demands, and the decision procedures JC Johnson Inc. has put in place to improve its ability to lead its industry in sustainability efforts.

∙ Chapter 12 highlights the potential to learn from innovation failures. Too often, firms become risk averse in their behavior in order to avoid failure. We discuss how this can result in missing truly innovative opportunities. Drawing off research by Julian Birkinshaw, we discuss the need for firms to get their employees to take bold innovation actions and steps firms can take to learn from failed innovation efforts to be more effective in future innovation efforts. We also discuss research on the consequences of losing star innovation employees. Firms worry about the loss of key innovation personnel, but research shows that while there are costs associated with the loss of star

PREFACE

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innovators, there are also potential benefits. Firms that lose key innovators typically experience a loss in exploitation-oriented innovation, but they also often see an increase in exploration-oriented innovation.

∙ Chapter 13 provides an example of how the College of Business Administration at Towson University successfully introduced a “live” business case completion across all of it strategic management sections. The “description” and the “case completion checklist” includes many of the elements of the analysis-decision-action cycle in case analysis that we address in the chapter.

∙ Chapter 13 updates our Appendix: Sources of Company and Industry Information. Here, we owe a big debt to Ruthie Brock and Carol Byrne, library professionals at the University of Texas at Arlington. These ladies have provided us with comprehensive and updated information for the Ninth Edition that is organized in a range of issues. These include competitive intelligence, annual report collections, company rankings, business websites, and strategic and competitive analysis. Such information is invaluable in analyzing companies and industries. We are always amazed by the diligence, competence—and good cheer—that Ruthie and Carol demonstrate when we impose on them every two years!

∙ We have worked hard to further enhance our excellent case package with a major focus on fresh and current cases on familiar firms. ∙ More than half of our cases are author-written (much more than the competition). ∙ We have updated our users favorite cases, creating fresh stories about familiar

companies to minimize instructor preparation time and “maximize freshness” of he content.

∙ We have added several exciting new cases to the lineup including Blackberry and Ascena (the successor company to Ann Talyor).

∙ We have also extensively updated 28 familiar cases with the latest news. ∙ Our cases are familiar yet fresh with new data and problems to solve.

WHAT REMAINS THE SAME: KEY FEATURES OF EARLIER EDITIONS Let’s now briefly address some of the exciting features that remain from the earlier editions.

∙ Traditional organizing framework with three other chapters on timely topics. Crisply written chapters cover all of the strategy bases and address contemporary topics. First, the chapters are divided logically into the traditional sequence: strategy analysis, strategy formulation, and strategy implementation. Second, we include three chapters on such timely topics as intellectual capital/knowledge management, entrepreneurial strategy and competitive dynamics, and fostering corporate entrepreneurship and new ventures.

∙ “Learning from Mistakes” chapter-opening cases. To enhance student interest, we begin each chapter with a case that depicts an organization that has suffered a dramatic performance drop, or outright failure, by failing to adhere to sound strategic management concepts and principles. We believe that this feature serves to underpin the value of the concepts in the course and that it is a preferred teaching approach to merely providing examples of outstanding companies that always seem to get it right. After all, isn’t it better (and more challenging) to diagnose problems than admire perfection? As Dartmouth’s Sydney Finkelstein, author of Why Smart Executives Fail,

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PREFACE

notes: “We live in a world where success is revered, and failure is quickly pushed to the side. However, some of the greatest opportunities to learn—for both individuals and organizations—come from studying what goes wrong.”* We’ll see how, for example, why Frederica Marchionni, the CEO that Land’s End hired in 2015, failed to spearhead the revival of the brand. Her initiatives geared toward taking the brand upscale turned out to be too much of a shock to the firm’s customer base as well as the firm’s family culture and wholesome style. As noted by a former executive, “It doesn’t look like Land’s End anymore. There was never the implication that if you wore Lands’ End you’d be on the beach on Nantucket living the perfect life.” We’ll also explore the bankruptcy of storied law firm Dewey & LeBoeuf LLP. Their failure can be attributed to three major issues: a reliance on borrowed money, making large promises about compensation to incoming partners (which didn’t sit well with their existing partners!), and a lack of transparency about the firm’s financials.

∙ “Issue for Debate” at the end of each chapter. We find that students become very engaged (and often animated!) in discussing an issue that has viable alternate points of view. It is an exciting way to drive home key strategy concepts. For example, in Chapter 1, Seventh Generation is faced with a dilemma that confronts their values and they must decide whether or not to provide their products to some of their largest customers. At issue: While they sympathize (and their values are consistent) with the striking workers at the large grocery chains, should they cross the picket lines? In Chapter 4, we discuss an issue that can be quite controversial: Does offering financial incentives to employees to lose weight actually work? We will explain a study by professors and medical professionals who conducted a test to explore this issue. And, in Chapter 7, we address Medtronic’s decision to acquire Covidien, an Irish-based medical equipment manufacturer for $43 billion. Its primary motive: Lower its taxes by moving its legal home to Ireland—a country that has lower rates of taxation on corporations. Some critics may see such a move as unethical and unpatriotic. Others would argue that it will help the firm save on taxes and benefit their shareholders.

∙ “Insights from Research.” We include six of this feature in the Ninth Edition—and half of them are entirely new. Here, we summarize key research findings on a variety of issues and, more importantly, address their relevance for making organizations (and managers!) more effective. For example, in Chapter 2 we discuss findings from a meta- analysis (research combining many individual studies) to debunk several myths about older workers—a topic of increasing importance, given the changing demographics in many developed countries. In Chapter 4, we address a study that explored the viability of re-hiring employees who had previously left the organizations. Such employees, called “boomerangs” may leave an organization for several reasons and such reasons may strongly influence their willingness to return to the organization. In Chapter 5, we summarize a study that looked at how firms can improve their innovativeness by drawing on interactions with customers but only if the firm empowers front line employees to lead innovative efforts and provides incentives to motivate employees to do so. In Chapter 10, we discuss research on firms in transition economies that found firms which learn from both external partners and by spanning boundaries within the firm can improve their innovation. However, learning between units within the firm produced higher innovation performance.

*Personal Communication, June 20, 2005.

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∙ “Reflecting on Career Implications. . .” We provide insights that are closely aligned with and directed to three distinct issues faced by our readers: prepare them for a job interview (e.g., industry analysis), help them with current employers or their career in general, or help them find potential employers and decide where to work. We believe this will be very valuable to students’ professional development.

∙ Consistent chapter format and features to reinforce learning. We have included several features in each chapter to add value and create an enhanced learning experience. First, each chapter begins with an overview and a list of key learning objectives. Second, as previously noted, the opening case describes a situation in which a company’s performance eroded because of a lack of proper application of strategy concepts. Third, at the end of each chapter there are four different types of questions/exercises that should help students assess their understanding and application of material:

1. Summary review questions. 2. Experiential exercises. 3. Application questions and exercises. 4. Ethics questions.

Given the centrality of online systems to business today, each chapter contains at least one exercise that allows students to explore the use of the web in implementing a firm’s strategy.

∙ Key Terms. Approximately a dozen key terms for each chapter are identified in the margins of the pages. This addition was made in response to reviewer feedback and improves students’ understanding of core strategy concepts.

∙ Clear articulation and illustration of key concepts. Key strategy concepts are introduced in a clear and concise manner and are followed by timely and interesting examples from business practice. Such concepts include value-chain analysis, the resource- based view of the firm, Porter’s five-forces model, competitive advantage boundaryless organizational designs, digital strategies, corporate governance, ethics, data analytics, and entrepreneurship.

∙ Extensive use of sidebars. We include 64 sidebars (or about five per chapter) called “Strategy Spotlights.” The Strategy Spotlights not only illustrate key points but also increase the readability and excitement of new strategy concepts.

∙ Integrative themes. The text provides a solid grounding in ethics, globalization, environmental substainability, and technology. These topics are central themes throughout the book and form the basis for many of the Strategy Spotlights.

∙ Implications of concepts for small businesses. Many of the key concepts are applied to start-up firms and smaller businesses, which is particularly important since many students have professional plans to work in such firms.

∙ Not just a textbook but an entire package. Strategic Management features the best chapter teaching notes available today. Rather than merely summarizing the key points in each chapter, we focus on value-added material to enhance the teaching (and learning) experience. Each chapter includes dozens of questions to spur discussion, teaching tips, in-class group exercises, and about a dozen detailed examples from business practice to provide further illustrations of key concepts.

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PREFACE

TEACHING RESOURCES Instructor’s Manual (IM) Prepared by the textbook authors, along with valued input from our strategy colleagues, the accompanying IM contains summary/objectives, lecture/discussion outlines, discussion questions, extra examples not included in the text, teaching tips, reflecting on career implications, experiential exercises, and more.

Test Bank Revised by Christine Pence of the University of California-Riverside, the test bank contains more than 1,000 true/false, multiple-choice, and essay questions. It is tagged with learning objectives as well as Bloom’s Taxonomy and AACSB criteria.

∙ Assurance of Learning Ready. Assurance of Learning is an important element of many accreditation standards. Dess 9e is designed specifically to support your Assurance of Learning initiatives. Each chapter in the book begins with a list of numbered learning objectives that appear throughout the chapter. Every test bank question is also linked to one of these objectives, in addition to level of difficulty, topic area, Bloom’s Taxonomy level, and AACSB skill area. EZ Test, McGraw-Hill’s easy-to-use test bank software, can search the test bank by these and other categories, providing an engine for targeted Assurance of Learning analysis and assessment.

∙ AACSB Statement. The McGraw-Hill Companies is a proud corporate member of AACSB International. Understanding the importance and value of AACSB accreditation, Dess 9e has sought to recognize the curricula guidelines detailed in the AACSB standards for business accreditation by connecting selected questions in Dess 9e and the test bank to the general knowledge and skill guidelines found in the AACSB standards. The statements contained in Dess 9e are provided only as a guide for the users of this text. The AACSB leaves content coverage and assessment within the purview of individual schools, the mission of the school, and the faculty. While Dess 9e and the teaching package make no claim of any specific AACSB qualification or evaluation, we have labeled selected questions within Dess 9e according to the six general knowledge and skills areas.

∙ Computerized Test Bank Online. A comprehensive bank of test questions is provided within a computerized test bank powered by McGraw-Hill’s flexible electronic testing program, EZ Test Online (www.eztestonline.com). EZ Test Online allows you to create paper and online tests or quizzes in this easy-to-use program. Imagine being able to create and access your test or quiz anywhere, at any time, without installing the testing software! Now, with EZ Test Online, instructors can select questions from multiple McGraw-Hill test banks or author their own and then either print the test for paper distribution or give it online.

∙ Test Creation. ∙ Author/edit questions online using the 14 different question-type templates. ∙ Create printed tests or deliver online to get instant scoring and feedback. ∙ Create question pools to offer multiple versions online—great for practice. ∙ Export your tests for use in WebCT, Blackboard, and Apple’s iQuiz. ∙ Compatible with EZ Test Desktop tests you’ve already created. ∙ Sharing tests with colleagues, adjuncts, TAs is easy.

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∙ Online Test Management. ∙ Set availability dates and time limits for your quiz or test. ∙ Control how your test will be presented. ∙ Assign points by question or question type with drop-down menu. ∙ Provide immediate feedback to students or delay until all finish the test. ∙ Create practice tests online to enable student mastery. ∙ Your roster can be uploaded to enable student self-registration.

∙ Online Scoring and Reporting. ∙ Automated scoring for most of EZ Test’s numerous question types. ∙ Allows manual scoring for essay and other open response questions. ∙ Manual rescoring and feedback are also available. ∙ EZ Test’s grade book is designed to easily export to your grade book. ∙ View basic statistical reports.

∙ Support and Help. ∙ User’s guide and built-in page-specific help. ∙ Flash tutorials for getting started on the support site. ∙ Support website: www.mhhe.com/eztest. ∙ Product specialist available at 1-800-331-5094. ∙ Online training: http://auth.mhhe.com/mpss/workshops/.

PowerPoint Presentation Prepared by Pauline Assenza of Western Connecticut State University, it consists of more than 400 slides incorporating an outline for the chapters tied to learning objectives. Also included are instructor notes, multiple-choice questions that can be used as Classroom Performance System (CPS) questions, and additional examples outside the text to promote class discussion.

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Connect content is authored by the world’s best subject matter experts, and is available to your class through a simple and intuitive interface.

The Connect eBook makes it easy for students to access their reading material on smartphones and tablets. They can study on the go and don’t need internet access to use the eBook as a reference, with full functionality.

Multimedia content such as videos, simulations, and games drive student engagement and critical thinking skills.

©McGraw-Hill Education

Connect’s assignments help students contextualize what they’ve learned through application, so they can better understand the material and think critically.

Connect will create a personalized study path customized to individual student needs through SmartBook®.

SmartBook helps students study more efficiently by delivering an interactive reading experience through adaptive highlighting and review.

McGraw-Hill Connect® is a highly reliable, easy-to- use homework and learning management solution that utilizes learning science and award-winning adaptive tools to improve student results.

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Using Connect improves retention rates by 19.8 percentage points, passing rates by 12.7 percentage points, and exam

scores by 9.1 percentage points.

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www.mheducation.com/connect

©Hero Images/Getty Images

More students earn As and Bs when they

use Connect.

Connect Insight® generates easy-to-read reports on individual students, the class as a whole, and on specific assignments.

The Connect Insight dashboard delivers data on performance, study behavior, and effort. Instructors can quickly identify students who struggle and focus on material that the class has yet to master.

Connect automatically grades assignments and quizzes, providing easy-to-read reports on individual and class performance.

Connect integrates with your LMS to provide single sign-on and automatic syncing of grades. Integration with Blackboard®, D2L®, and Canvas also provides automatic syncing of the course calendar and assignment-level linking.

Connect offers comprehensive service, support, and training throughout every phase of your implementation.

If you’re looking for some guidance on how to use Connect, or want to learn tips and tricks from super users, you can find tutorials as you work. Our Digital Faculty Consultants and Student Ambassadors offer insight into how to achieve the results you want with Connect.

Trusted Service and Support

Robust Analytics and Reporting

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PREFACE

The Business Strategy Game and GLO-BUS Online Simulations Both allow teams of students to manage companies in a head-to-head contest for global market leadership. These simulations give students the immediate opportunity to experiment with various strategy options and to gain proficiency in applying the concepts and tools they have been reading about in the chapters. To find out more or to register, please visit www.mhhe.com/ thompsonsims.

ADDITIONAL RESOURCES FOR COURSE DESIGN AND DELIVERY Create Craft your teaching resources to match the way you teach! With McGraw-Hill Create, www.mcgrawhillcreate.com, you can easily rearrange chapters, combine material from other content sources, and quickly upload content you have written, like your course syllabus or teaching notes. Find the content you need in Create by searching through thousands of leading McGraw-Hill textbooks. Arrange your book to fit your teaching style. Create even allows you to personalize your book’s appearance by selecting the cover and adding your name, school, and course information. Order a Create book and you’ll receive a complimentary print review copy in three to five business days or a complimentary electronic review copy (eComp) via email in about one hour. Go to www.mcgrawhillcreate.com today and register. Experience how McGraw- Hill Create empowers you to teach your students your way.

E-Book Options E-books are an innovative way for students to save money and to “go green.” McGraw-Hill’s e-books are typically 40 percent of bookstore price. Students have the choice between an online and a downloadable CourseSmart e-book.

Through CourseSmart, students have the flexibility to access an exact replica of their textbook from any computer that has Internet service, without plug-ins or special software via the version, or create a library of books on their hard drive via the downloadable version. Access to CourseSmart e-books is one year.

Features: CourseSmart e-books allow students to highlight, take notes, organize notes, and share the notes with other CourseSmart users. Students can also search terms across all e-books in their purchased CourseSmart library. CourseSmart e-books can be printed (5 pages at a time).

More info and purchase: Please visit www.coursesmart.com for more information and to purchase access to our e-books. CourseSmart allows students to try one chapter of the e-book, free of charge, before purchase.

McGraw-Hill Higher Education and Blackboard McGraw-Hill Higher Education and Blackboard have teamed up. What does this mean for you?

1. Your life, simplified. Now you and your students can access McGraw-Hill’s Connect and Create right from within your Blackboard course—all with one single sign-on. Say goodbye to the days of logging in to multiple applications.

2. Deep integration of content and tools. Not only do you get single sign-on with Connect and Create, you also get deep integration of McGraw-Hill content and content engines

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right in Blackboard. Whether you’re choosing a book for your course or building Connect assignments, all the tools you need are right where you want them—inside Blackboard.

3. Seamless gradebooks. Are you tired of keeping multiple gradebooks and manually synchronizing grades into Blackboard? We thought so. When a student completes an integrated Connect assignment, the grade for that assignment automatically (and instantly) feeds into Blackboard grade center.

4. A solution for everyone. Whether your institution is already using Blackboard or you just want to try Blackboard on your own, we have a solution for you. McGraw-Hill and Blackboard can now offer you easy access to industry-leading technology and content, whether your campus hosts it or we do. Be sure to ask your local McGraw-Hill representative for details.

McGraw-Hill Customer Care Contact Information At McGraw-Hill, we understand that getting the most from new technology can be challenging. That’s why our services don’t stop after you purchase our products. You can email our product specialists 24 hours a day to get product training online. Or you can search our knowledge bank of Frequently Asked Questions on our support website. For customer support, call 800-331- 5094, email hmsupport@mcgraw-hill.com, or visit www.mhhe.com/support. One of our technical support analysts will be able to assist you in a timely fashion.

ACKNOWLEDGMENTS Strategic Management represents far more than just the joint efforts of the three co-authors. Rather, it is the product of the collaborative input of many people. Some of these individuals are academic colleagues, others are the outstanding team of professionals at McGraw-Hill, and still others are those who are closest to us—our families. It is time to express our sincere gratitude.

First, we’d like to acknowledge the dedicated instructors who have graciously provided their insights since the inception of the text. Their input has been very helpful in both pointing out errors in the manuscript and suggesting areas that needed further development as additional topics. We sincerely believe that the incorporation of their ideas has been critical to improving the final product. These professionals and their affiliations are:

The Reviewer Hall of Fame

Moses Acquaah, University of North Carolina-Greensboro

Todd Alessandri, Northeastern University

Larry Alexander, Virginia Polytechnic Institute

Thomas H. Allison, Washington State University

Brent B. Allred, College of William & Mary

Allen C. Amason, Georgia Southern University

Kathy Anders, Arizona State University

Jonathan Anderson, University of West Georgia

Peter H. Antoniou, California State University- San Marcos

Dave Arnott, Dallas Baptist University

Marne L. Arthaud-Day, Kansas State University

Dr. Bindu Arya, University of Missouri— St. Louis

Jay A. Azriel, York College of Pennsylvania

Jeffrey J. Bailey, University of Idaho

David L. Baker, PhD, John Carroll University

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PREFACE

Dennis R. Balch, University of North Alabama

Bruce Barringer, University of Central Florida

Barbara R. Bartkus, Old Dominion University

Barry Bayon, Bryant University

Brent D. Beal, Louisiana State University

Dr. Patricia Beckenholdt, Business and Professional Programs, University of Maryland, University College

Joyce Beggs, University of North Carolina-Charlotte

Michael Behnam, Suffolk University

Kristen Bell DeTienne, Brigham Young University

Eldon Bernstein, Lynn University

Lyda Bigelow, University of Utah

David Blair, University of Nebraska at Omaha

Daniela Blettner, Tilburg University

Dusty Bodie, Boise State University

William Bogner, Georgia State University

David S. Boss, PhD, Ohio University

Scott Browne, Chapman University

Jon Bryan, Bridgewater State College

Charles M. Byles, Virginia Commonwealth University

Mikelle A. Calhoun, Valparaiso University

Thomas J. Callahan, University of Michigan–Dearborn

Samuel D. Cappel, Southeastern Louisiana State University

Gary Carini, Baylor University

Shawn M. Carraher, University of Texas–Dallas

Tim Carroll, University of South Carolina

Don Caruth, Amberton University

Maureen Casile, Bowling Green State University

Gary J. Castrogiovanni, Florida Atlantic University

Radha Chaganti, Rider University

Erick PC Chang, Arkansas State University

Tuhin Chaturvedi, Joseph M. Katz Graduate School of Business, University of Pittsburgh

Jianhong Chen, University of New Hampshire

Tianxu Chen, Oakland University

Andy Y. Chiou, SUNY Farmingdale State College

Theresa Cho, Rutgers University

Timothy S. Clark, Northern Arizona University

Bruce Clemens, Western New England College

Betty S. Coffey, Appalachian State University

Wade Coggins, Webster University-Fort Smith Metro Campus

Susan Cohen, University of Pittsburgh

George S. Cole, Shippensburg University

Joseph Coombs, Virginia Commonwealth University

Christine Cope Pence, University of California-Riverside

James J. Cordeiro, SUNY Brockport

Stephen E. Courter, University of Texas at Austin

Jeffrey Covin, Indiana University

Keith Credo, Auburn University

Joshua J. Daspit, PhD, Mississippi State University

Deepak Datta, University of Texas at Arlington

James Davis, Utah State University

Justin L. Davis, University of West Florida

David Dawley, West Virginia University

Daniel DeGravel, California State University Northridge, David Nazarian College of Business and Economics

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Helen Deresky, State University of New York-Plattsburgh

Rocki-Lee DeWitt, University of Vermont

Jay Dial, Ohio State University

Michael E. Dobbs, Arkansas State University

Jonathan Doh, Villanova University

Dr. John Donnellan, NJCU School of Business

Tom Douglas, Clemson University

Jon Down, Oregon State University

Meredith Downes, Illinois State University

Alan E. Ellstrand, University of Arkansas

Dean S. Elmuti, Eastern Illinois University

Clare Engle, Concordia University

Mehmet Erdem Genc, Baruch College, CUNY

Tracy Ethridge, Tri-County Technical College

William A. Evans, Troy State University-Dothan

Frances H. Fabian, University of Memphis

Angelo Fanelli, Warrington College of Business

Michael Fathi, Georgia Southwestern University

Carolyn J. Fausnaugh, Florida Institute of Technology

Tamela D. Ferguson, University of Louisiana at Lafayette

David Flanagan, Western Michigan University

Kelly Flis, The Art Institutes

Karen Ford-Eickhoff, University of North Carolina Charlotte

Dave Foster, Montana State University

Isaac Fox, University of Minnesota

Charla S. Fraley, Columbus State Community College–Columbus, Ohio

Deborah Francis, Brevard College

Steven A. Frankforter, Winthrop University

Vance Fried, Oklahoma State University

Karen Froelich, North Dakota State University

Naomi A. Gardberg, Baruch College, CUNY

Joe Gerard, Western New England University

J. Michael Geringer, Ohio University

Diana L. Gilbertson, California State University–Fresno

Matt Gilley, St. Mary’s University

Debbie Gilliard, Metropolitan State College-Denver

Yezdi H. Godiwalla, University of Wisconsin–Whitewater

Sanjay Goel, University of Minnesota-Duluth

Sandy Gough, Boise State University

Amy Gresock, PhD The University of Michigan, Flint

Vishal K. Gupta, The University of Mississippi

Dr. Susan Hansen, University of Wisconsin–Platteville

Allen Harmon, University of Minnesota–Duluth

Niran Harrison, University of Oregon

Paula Harveston, Berry College

Ahmad Hassan, Morehead State University

Donald Hatfield, Virginia Polytechnic Institute

Kim Hester, Arkansas State University

Scott Hicks, Liberty University

John Hironaka, California State University–Sacramento

Anne Kelly Hoel, University of Wisconsin– Stout

Alan Hoffman, Bentley College

Gordon Holbein, University of Kentucky

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PREFACE

Stephen V. Horner, Pittsburg State University

Jill Hough, University of Tulsa

John Humphreys, Eastern New Mexico University

James G. Ibe, Morris College

Jay J. Janney, University of Dayton

Lawrence Jauch, University of Louisiana-Monroe

Dana M. Johnson, Michigan Technical University

Homer Johnson, Loyola University, Chicago

Marilyn R. Kaplan, Naveen Jindal School of Management, University of Texas–Dallas

James Katzenstein, California State University– Dominguez Hills

Joseph Kavanaugh, Sam Houston State University

Franz Kellermanns, University of Tennessee

Craig Kelley, California State University-Sacramento

Donna Kelley, Babson College

Dave Ketchen, Auburn University

John A. Kilpatrick, Idaho State University

Dr. Jaemin Kim, Stockton University

Brent H. Kinghorn, Emporia State University

Helaine J. Korn, Baruch College, CUNY

Stan Kowalczyk, San Francisco State University

Daniel Kraska, North Central State College

Donald E. Kreps, Kutztown University

Jim Kroeger, Cleveland State University

Subdoh P. Kulkarni, Howard University

Ron Lambert, Faulkner University

Theresa Lant, New York University

Jai Joon Lee, California State University Sacramento

Ted Legatski, Texas Christian University

David J. Lemak, Washington State University–Tri-Cities

Cynthia Lengnick-Hall, University of Texas at San Antonio

Donald L. Lester, Arkansas State University

Wanda Lester, North Carolina A&T State University

Krista B. Lewellyn, University of Wyoming

Benyamin Lichtenstein, University of Massachusetts at Boston

Jun Lin, SUNY at New Paltz

Zhiang (John) Lin, University of Texas at Dallas

Dan Lockhart, University of Kentucky

John Logan, University of South Carolina

Franz T. Lohrke, Samford University

Kevin B. Lowe, Graduate School of Management, University of Auckland

Leyland M. Lucas, Morgan State University

Doug Lyon, Fort Lewis College

Rickey Madden, PhD, Presbyterian College

James Maddox, Friends University

Ravi Madhavan, University of Pittsburgh

Paul Mallette, Colorado State University

Santo D. Marabella, Moravian College

Catherine Maritan, Syracuse University

Daniel Marrone, Farmingdale State College, SUNY

Sarah Marsh, Northern Illinois University

Jim Martin, Washburn University

John R. Massaua, University of Southern Maine

Hao Ma, Bryant College

Larry McDaniel, Alabama A&M University

Jean McGuire, Louisiana State University

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Abagail McWilliams, University of Illinois-Chicago

Ofer Meilich, California State University– San Marcos

John E. Merchant, California State University–Sacramento

John M. Mezias, University of Miami

Michael Michalisin, Southern Illinois University at Carbondale

Doug Moesel, University of Missouri-Columbia

Fatma Mohamed, Morehead State University

Mike Montalbano, Bentley University

Debra Moody, University of North Carolina–Charlotte

Gregory A. Moore, Middle Tennessee State University

James R. Morgan, Dominican University and UC Berkeley Extension

Ken Morlino, Wilmington University

Sara A. Morris, Old Dominion University

Todd W. Moss, PhD, Syracuse University

Carolyn Mu, Baylor University

Stephen Mueller, Northern Kentucky University

John Mullane, Middle Tennessee State University

Chandran Mylvaganam, Northwood University

Sucheta Nadkarni, Cambridge University

Anil Nair, Old Dominion University

V.K. Narayanan, Drexel University

Maria L. Nathan, Lynchburg College

Louise Nemanich, Arizona State University

Charles Newman, University of Maryland, University College

Stephanie Newport, Austin Peay State University

Gerry Nkombo Muuka, Murray State University

Bill Norton, University of Louisville

Dr. Jill E. Novak Texas A&M University

Roman Nowacki, Northern Illinois University

Yusuf A. Nur, SUNY Brockport

Jeffrey Richard Nystrom, University of Colorado– Denver

William Ross O’Brien, Dallas Baptist University

d.t. ogilvie, Rutgers University

Floyd Ormsbee, Clarkson University

Dr. Mine Ozer, SUNY-Oneonta

Dr. Eren Ozgen, Troy University-Dothan Campus

Karen L. Page, University of Wyoming

Jacquelyn W. Palmer, University of Cincinnati

Julie Palmer, University of Missouri–Columbia

Daewoo Park, Xavier University

Gerald Parker, Saint Louis University

Ralph Parrish, University of Central Oklahoma

Amy Patrick, Wilmington University

John Pepper, The University of Kansas

Douglas K. Peterson, Indiana State University

Edward Petkus, Mary Baldwin College

Michael C. Pickett, National University

Peter Ping Li, California State University-Stanislaus

Michael W. Pitts, Virginia Commonwealth University

Laura Poppo, Virginia Tech

Steve Porth, Saint Joseph’s University

Jodi A. Potter, Robert Morris University

Scott A. Quatro, Grand Canyon University

Nandini Rajagopalan, University of Southern California

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PREFACE

Annette L. Ranft, North Carolina State University

Abdul Rasheed, University of Texas at Arlington

Devaki Rau, Northern Illinois University

George Redmond, Franklin University

Kira Reed, Syracuse University

Clint Relyea, Arkansas State University

Barbara Ribbens, Western Illinois University

Maurice Rice, University of Washington

Violina P. Rindova, University of Texas–Austin

Ron Rivas, Canisius College

David Robinson, Indiana State University–Terre Haute

Kenneth Robinson, Kennesaw State University

Simon Rodan, San Jose State University

Patrick R. Rogers, North Carolina A&T State University

John K. Ross III, Texas State University–San Marcos

Robert Rottman, Kentucky State University

Matthew R. Rutherford, Gonzaga University

Carol M. Sanchez, Grand Valley State University

Doug Sanford, Towson University

William W. Sannwald, San Diego State University

Yolanda Sarason, Colorado State University

Marguerite Schneider, New Jersey Institute of Technology

Roger R. Schnorbus, University of Richmond

Terry Sebora, University of Nebraska–Lincoln

John Seeger, Bentley College

Jamal Shamsie, Michigan State University

Mark Shanley, University of Illinois at Chicago

Ali Shahzad, James Madison University

Lois Shelton, California State University–Northridge

Herbert Sherman, Long Island University

Weilei Shi, Baruch College, CUNY

Chris Shook, Auburn University

Jeremy Short, University of Oklahoma

Mark Simon, Oakland University– Michigan

Rob Singh, Morgan State University

Bruce Skaggs, University of Massachusetts

Lise Anne D. Slattern, University of Louisiana at Lafayette

Wayne Smeltz, Rider University

Anne Smith, University of Tennessee

Andrew Spicer, University of South Carolina

James D. Spina, University of Maryland

John Stanbury, George Mason University & Inter-University Institute of Macau, SAR China

Timothy Stearns, California State University–Fresno

Elton Stephen, Austin State University

Charles E. Stevens, University of Wyoming

Alice Stewart, Ohio State University

Mohan Subramaniam, Carroll School of Management Boston College

Ram Subramanian, Grand Valley State University

Roy Suddaby, University of Iowa

Michael Sullivan, UC Berkeley Extension

Marta Szabo White, Georgia State University

Stephen Takach, University of Texas at San Antonio

Justin Tan, York University, Canada

Qingjiu Tao, PhD, James Madison University

Renata A. Tarasievich, University of Illinois at Chicago

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Linda Teagarden, Virginia Tech

Bing-Sheng Teng, George Washington University

Alan Theriault, University of California–Riverside

Tracy Thompson, University of Washington–Tacoma

Karen Torres, Angelo State University

Mary Trottier, Associate Professor of Management, Nichols College

Robert Trumble, Virginia Commonwealth University

Francis D. (Doug) Tuggle, Chapman University

K.J. Tullis, University of Central Oklahoma

Craig A. Turner, PhD, East Tennessee State University

Beverly Tyler, North Carolina State University

Rajaram Veliyath, Kennesaw State University

S. Stephen Vitucci, Tarleton State University– Central Texas

Jay A. Vora, St. Cloud State University

Valerie Wallingford, Ph.D., Bemidji State University

Jorge Walter, Portland State University

Bruce Walters, Louisiana Tech University

Edward Ward, St. Cloud State University

N. Wasilewski, Pepperdine University

Andrew Watson, Northeastern University

Larry Watts, Stephen F. Austin University

Marlene E. Weaver, American Public University System

Paula S. Weber, St. Cloud State University

Kenneth E. A. Wendeln, Indiana University

Robert R. Wharton, Western Kentucky University

Laura Whitcomb, California State University-Los Angeles

Scott Williams, Wright State University

Ross A. Wirth, Franklin University

Gary Wishniewsky, California State University East Bay

Diana Wong, Bowling Green State University

Beth Woodard, Belmont University

John E. Wroblewski, State University of New York-Fredonia

Anne York, University of Nebraska- Omaha

Michael Zhang, Sacred Heart University

Monica Zimmerman, Temple University

Second, we would like to thank the people who have made our two important “features” possible. The information found in our six “Insights from Research” was provided courtesy of www.businessminded.com, an organization founded by K. Matthew Gilley, PhD (St. Mary’s University) that transforms empirical management research into actionable insights for business leaders. We appreciate Matt’s graciousness and kindness in helping us out. And, of course, our “Executive Insights: The Strategic Management Process” would not have been possible without the gracious participation of Admiral William H. McRaven, Retired who is presently Chancellor of the University of Texas System, and Jana Pankratz, Executive Director.

Third, the authors would like to thank several faculty colleagues who were particularly helpful in the review, critique, and development of the book and supplementary materials. Greg’s and Sean’s colleagues at the University of Texas at Dallas also have been helpful and supportive. These individuals include Mike Peng, Joe Picken, Kumar Nair, John Lin, Larry

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PREFACE

Chasteen, Tev Dalgic, and Livia Markoczy. His administrative assistant, Shalonda Hill, has been extremely helpful. Four doctoral students, Brian Pinkham, Steve Sauerwald, Kyun Kim, and Canan Mutlu, have provided many useful inputs and ideas. He also appreciates the support of his dean and associate dean, Hasan Pirkul and Varghese Jacob, respectively. Greg wishes to thank a special colleague, Abdul Rasheed at the University of Texas at Arlington, who certainly has been a valued source of friendship and ideas for us for many years. He provided many valuable contributions to the Ninth Edition. Gerry thanks all of his colleagues at Michigan State University for their help and support over the years. He also thanks his mentor, Phil Bromiley, as well as the students and former students he has had the pleasure of working with, including Cindy Devers, Federico Aime, Mike Mannor, Bernadine Dykes, Mathias Arrfelt, Kalin Kolev, Seungho Choi, Danny Gamache, and Adam Steinbach. Alan thanks his colleagues at Pace University and the Case Association for their support in developing these fine case selections. Special thanks go to Jamal Shamsie at Michigan State University for his support in developing the case selections for this edition.

Fourth, we would like to thank the team at McGraw-Hill for their outstanding support throughout the entire process. As we work on the book through the various editions, we always appreciate their hard work and recognize how so many people “add value” to our final package. This began with John Biernat, formerly publisher, who signed us to our original contract. He was always available to us and provided a great deal of support and valued input throughout several editions. Presently, in editorial, Susan Gouijnstook, managing director, director Mike Ablassmeir, senior product developers Anne Ehrenworth and Katharine Glynn (of Piper Editorial) kept things on track, responded quickly to our seemingly endless needs and requests, and offered insights and encouragement. We appreciate their expertise—as well as their patience! Once the manuscript was completed and revised, content project manager Harvey Yep expertly guided it through the content and assessment production process. Matt Diamond provided excellent design and artwork guidance. We also appreciate executive marketing manager Debbie Clare and marketing coordinator Brittany Berholdt for their energetic, competent, and thorough marketing efforts. Last, but certainly not least, we thank MHE’s 70-plus outstanding book reps—who serve on the “front lines”—as well as many in-house sales professionals based in Dubuque, Iowa. Clearly, they deserve a lot of credit (even though not mentioned by name) for our success.

Fifth, we acknowledge the valuable contributions of many of our strategy colleagues for their excellent contributions to our supplementary and digital materials. Such content really adds a lot of value to our entire package! We are grateful to Pauline Assenza at Western Connecticut State University for her superb work on case teaching notes as well as chapter and case PowerPoints. Justin Davis, University of West Florida, along with Noushi Rahman, Pace University, deserve our thanks for their hard work in developing excellent digital materials for Connect. Thanks also goes to Noushi Rahman for developing the Connect IM that accompanies this edition of the text. And, finally, we thank Christine Pence, University of California-Riverside, for her important contributions in revising our test bank and chapter quizzes, and Todd Moss, Oregon State University, for his hard work in putting together an excellent set of videos online, along with the video grid that links videos to chapter material.

Finally, we would like to thank our families. For Greg this includes his parents, William and Mary Dess, who have always been there for him. His wife, Margie, and daughter, Taylor, have been a constant source of love and companionship. His father, a career U. S. Air Force pilot took his “final flight” on May 22, 2015. Truly a member of Tom Brokaw’s “Greatest Generation,” he completed flight school before his 21st birthday and flew nearly 30 missions over Japan in World War II as a B-29 bomber pilot before he turned 23. His wife, five children, and several

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grandchildren truly miss him. Gerry thanks his wife, Gaelen, for her love, support, and friendship; and his children, Megan and AJ, for their love and the joy they bring to his life. He also thanks his current and former PhD students who regularly inspire and challenge him. Alan thanks his family—his wife, Helaine, and his children, Rachel and Jacob—for their love and support. He also thanks his parents, Gail Eisner and the late Marvin Eisner, for their support and encouragement. Sean thanks his wife, Hannah, and his two boys, Paul and Stephen, for their unceasing love and care. He also thanks his parents, Kenny and Inkyung Lee for being there whenever needed.

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A GUIDED TOUR

LEARNING OBJECTIVES Learning Objectives numbered L05.1, L05.2, L05.3, etc., with corresponding icons in the margins to indicate where learning objectives are covered in the text.

LEARNING FROM MISTAKES Learning from Mistakes vignettes are examples of where things went wrong. Failures are not only interesting but also sometimes easier to learn from. And students realize strategy is notjustabout “right or wrong” answers, but requires critical thinking.

STRATEGY SPOTLIGHT These boxes weave themes of ethics, globalization, and technology into every chapter of the text, providing students with a thorough grounding necessary for understanding strategic management. Select boxes incorporate crowdsourcing, environmental sustainability, and ethical themes.

a guided

tour

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chapter

After reading this chapter, you should have a good understanding of the following learning objectives:

1 LO1-1 The definition of strategic management and its four key attributes. LO1-2 The strategic management process and its three interrelated and principal

activities.

LO1-3 The vital role of corporate governance and stakeholder management, as well as how “symbiosis” can be achieved among an organization’s stakeholders.

LO1-4 The importance of social responsibility, including environmental sustainability, and how it can enhance a corporation’s innovation strategy.

LO1-5 The need for greater empowerment throughout the organization.

LO1-6 How an awareness of a hierarchy of strategic goals can help an organization achieve coherence in its strategic direction.

Strategic Management Creating Competitive Advantages

©Anatoli Styf/Getty Images

PART 1: STRATEGIC ANALYSIS

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What makes the study of strategic management so interesting? Things can change so rapidly! Some start-ups can disrupt industries and become globally recognized names in just a few years. The rankings of the world’s most valuable firms can dramatically change in a rather brief period of time. On the other hand, many impressive, high-flying firms can struggle to reclaim past glory or even fail. Recall just four that begin with the letter “b”—Blackberry, Blockbuster, Borders, and Barings. As colorfully (and ironically!) noted by Arthur Martinez, Sears’s former Chairman: “Today’s peacock is tomorrow’s feather duster.”1

Consider the following:2

• At the beginning of 2007, the three firms in the world with the highest market values were Exxon Mobil, General Electric, and Gazprom (a Russian natural gas firm). By early 2017, three high tech firms headed the list—Apple, Alphabet (parent of Google), and Microsoft.

• Only 74 of the original 500 companies in the S&P index were still around 40 years later. And McKinsey notes that the average company tenure on the S&P 500 list has fallen from 61 years in 1958 to about 20 in 2016.

• With the dramatic increase of the digital economy, new entrants are shaking up long-standing industries. Note that Alibaba is the world’s most valuable retailer—but holds no inventory; Airbnb is the world’s largest provider of accommodations—but owns no real estate; and Uber is the world’s largest car service but owns no cars.

• A quarter century ago, how many would have predicted that a South Korean firm would be a global car giant, than an Indian firm would be one of the world’s largest technology firms, and a huge Chinese Internet company would list on an American stock exchange?

• Fortune magazine’s annual list of the 500 biggest companies now features 156 emerging- market firms. This compares with only 18 in 1995!

To remain competitive, companies often must bring in “new blood” and make significant changes in their strategies. But sometimes a new CEO’s initiatives makes things worse. Let’s take a look at Lands’ End, an American clothing retailer.3

Lands’ End was founded in 1963 as a mail order supplier of sailboat equipment by Gary Comer. As business picked up, he expanded the business into clothing and home furnishings and moved the company to Dodgeville, Wisconsin, in 1978 where he was its CEO until he stepped down in 1990. The firm was acquired by Sears in 2002, but later spun off in 2013. A year later it commenced trading on the NASDAQ stock exchange.

Targeting Middle America, companies like Lands’ End, the GAP Inc., and J. C. Penney have had a hard time in recent years positioning themselves in the hotly contested clothing industry. They are squeezed on the high end by brands like Michael Kors Holdings Ltd. and Coach, Inc. On the lower end, fast-fashion retailers including H&M operator Hennes & Mauritz AB are applying pressure by churning out inexpensive, runway-inspired styles.

To spearhead a revival of the brand, Lands’ End hired a new CEO, Frederica Marchionni, in February 2015. However, since her arrival, the firm’s stock price has suffered, same store sales declined for all six quarters of her tenure, and the firm kept losing money. It reported a loss of $19.5 million for the year ending January 29, 2016—compared to a $73.8 million profit for the previous year. (And, things didn’t get better—it lost another $7.7 million in the first half of 2016.)

LEARNING FROM MISTAKES

PART 1: STRATEGIC ANALYSIS

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4.3 STRATEGY SPOTLIGHT MILLENNIALS HAVE A DIFFERENT DEFINITION OF DIVERSITY AND INCLUSION THAN PRIOR GENERATIONS A recent study by Deloitte and the Billie Jean King Leadership Initiative (BJKLI) shows that, in general, Millennials see the con- cepts of diversity and inclusion through a vastly different lens. The study analyzed the responses of 3,726 individuals who came from a wide variety of backgrounds with representation across gender, race/ethnicity, sexual orientation, national sta- tus, veteran status, disabilities, level within an organization, and tenure with an organization. The respondents were asked 62 questions about diversity and inclusion and the findings demon- strated a snapshot of shifting generational mindsets.

Millennials (born between 1977 to 1995) look upon diver- sity as the blending of different backgrounds, experiences, and perspectives within a team—which is known as cognitive diver- sity. They use this word to describe the mix of unique traits that help to overcome challenges and attain business objectives. For Millennials, inclusion is the support for a collaborative environ- ment, and leadership at such an organization must be transpar- ent, communicative, and engaging. According to the study, when defining diversity, Millennials are 35 percent more likely to focus on unique experiences, whereas 21 percent of non-Millennials are more likely to focus on representation.

The X-generation (born between 1965 and 1976) and Boomer generation (born between 1946 and 1964) have a different take.

These generations view diversity as a representation of fairness and protection for all—regardless of gender, race, religion, ethnic- ity, or sexual orientation. Here, inclusion is the integration of indi- viduals of all demographics into one workplace. It is the right thing to do, that is, a moral and legal imperative to achieve compliance and equality—regardless of whether it benefits the business. The study found that when asked about the business impact on diver- sity, Millennials are 71 percent more likely to focus on teamwork. In contrast, 28 percent of non-Millennials are more likely to focus on fairness of opportunity.

The study’s authors contend that the disconnect between the traditional definitions of diversity and inclusion and those of Millennials can create problems for businesses. For example, clashes may occur when managers do not permit Millennials to express themselves freely. The study found that while 86 percent of Millennials feel that differences of opinion allow teams to excel, only 59 percent believe that their leaders share this perspective.

The study suggests that a company with an inclusive culture promotes innovation. And it cites research by IBM and Morgan Stanley that shows that companies with high levels of innovation achieve the quickest growth in profits and that radical innova- tion outstrips incremental change by generating 10 times more shareholder value.

Sources: Dishman, L. 2015. Millennials have a different definition of diversity and inclusion. fastcompany.com, May 18: np; and Anonymous. 2015. For millennials inclusion goes beyond checking traditional boxes, according to a new Deloitte-- Billie Jean King Leadership Initiative Study. prnewswire.com, May 13: np.

THE VITAL ROLE OF SOCIAL CAPITAL Successful firms are well aware that the attraction, development, and retention of talent is a necessary but not sufficient condition for creating competitive advantages.80 In the knowledge economy, it is not the stock of human capital that is important, but the extent to which it is combined and leveraged.81 In a sense, developing and retaining human capital becomes less important as key players (talented professionals, in particular) take the role of “free agents” and bring with them the requisite skill in many cases. Rather, the development of social capital (that is, the friendships and working relationships among talented individuals) gains importance, because it helps tie knowledge workers to a given firm.82 Knowledge workers often exhibit greater loyalties to their colleagues and their profession than their employing organization, which may be “an amorphous, distant, and sometimes threatening entity.”83 Thus, a firm must find ways to create “ties” among its knowledge workers.